Ellington Residential Mortgage REIT Reports First Quarter 2018 Results
Highlights
-
Net loss of
$(4.0) million , or$(0.30) per share. -
Core Earnings1 of
$4.3 million , or$0.32 per share, and Adjusted Core Earnings1 of$4.4 million , or$0.34 per share. -
Book value of
$13.90 per share as of March 31, 2018, after giving effect to a first quarter dividend of$0.37 per share. - Net interest margin of 1.06%, and adjusted net interest margin2 of 1.09%.
- Weighted average constant prepayment rate for the fixed-rate Agency specified pool portfolio of 8.0%.
-
Dividend yield of 13.1% based on
May 2, 2018 closing stock price of$11.30 . - Debt-to-equity ratio of 8.9:1 as of March 31, 2018; adjusted for unsettled purchases and sales, the debt-to-equity ratio was 8.6:1.
- Net mortgage assets-to-equity ratio of 7.8:13 as of March 31, 2018.
-
Repurchased 512,367 shares during the quarter, or approximately 3.8%
of our outstanding shares as of the beginning of the quarter, at an
average price of
$11.21 per share.
1 Core Earnings and Adjusted Core Earnings are non-GAAP financial measures. Adjusted Core Earnings represents Core Earnings excluding the effect of the Catch-up Premium Amortization Adjustment on interest income. See "Reconciliation of Core Earnings to Net Income (Loss)" below for an explanation regarding the calculation of Core Earnings, Adjusted Core Earnings, and the Catch-up Premium Amortization Adjustment. |
2 Adjusted net interest margin represents net interest margin excluding the effect of the Catch-up Premium Amortization Adjustment on interest income. |
3 We define our net mortgage assets-to-equity ratio as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by total shareholders' equity. As of March 31, 2018 the market value of our mortgage-backed securities and our net short TBA position was $1.631 billion and $(243.3) million, respectively, and total shareholders' equity was $178.3 million. |
First Quarter 2018 Results
"In the first quarter, Ellington Residential had a net loss of
"The sudden return of volatility in the first months of the year, along with underperformance of the Agency mortgage sector relative to U.S. Treasuries, enabled us to cover some of our short TBA positions at attractive prices, while adding net Agency RMBS exposure at higher asset yields. At quarter end, our net mortgage assets-to-equity ratio increased to 7.8:1 from 5.7:1 in the prior quarter.
"Also during the first quarter, with our share price trading at a
significant discount to book value, we repurchased shares aggressively.
We bought back 3.8% of our shares outstanding, which was accretive to
book value by
"Going forward, we will continue to seek to capitalize on pricing dislocations that occur as the Federal Reserve's footprint in the market diminishes. As we demonstrated again this quarter, our diligent hedging and liquidity management protect book value while also providing the flexibility to dial up and down our Agency RMBS exposure dynamically in response to market opportunities."
Market Overview
-
In March, the Federal Reserve raised the target range for the federal
funds rate by 0.25%, to 1.50%–1.75%, its sixth rate increase since
December 1, 2015 . -
In January, and then again in April, the Federal Reserve increased the
amount of the tapering of its reinvestments, in line with the schedule
it had laid out in
September 2017 . The tapering of Agency RMBS purchases increased to$8 billion per month in January, and to$12 billion per month in April. - Despite steepening over the first two months of the year, the yield curve finished the quarter flatter than where it started, for the fifth consecutive quarter. The 2-year U.S. Treasury yield rose 38 basis points to end the quarter at 2.27%, while the 10-year U.S. Treasury yield increased 33 basis points to 2.74%; the spread between the 2-year and 10-year tightened to just 47 basis points, as compared to 52 basis points at year-end.
- One-month LIBOR increased 32 basis points to end the first quarter at 1.88%, while three-month LIBOR increased 62 basis points to 2.31%. Both of these levels were the highest in over nine years.
-
Mortgage rates increased in the first quarter, with the
Freddie Mac survey 30-year mortgage rate rising 45 basis points to end the quarter at 4.44%. -
Overall Agency RMBS prepayment rates continued to be muted during the
quarter.
The Mortgage Bankers Association's Refinance Index, which measures refinancing application volumes, was unchanged quarter over quarter.
The beginning of 2018 started much like 2017 finished, with equities
reaching new highs in January. However, toward the end of January, the
relative stability of 2017 suddenly reversed course. Equities sold off
violently, driven in part by concerns over inflation and rising interest
rates. The Dow Jones Industrial Average moved more than 2% in four of
the first six trading sessions of February, as compared to no such days
during 2017. By
In March, equity volatility remained elevated amidst new concerns of an
international trade war, while long-term interest rates leveled off and
the yield curve flattened. Despite all of the volatility, the
During the quarter, yield spreads across many credit products widened in sympathy with the interest rate and equity market volatility. Corporate credit spreads tightened slightly during January but then widened dramatically. The Markit North America High Yield Index widened 63 basis points during the quarter—and in March reached its highest level since December 2016—while the Bloomberg Barclays U.S. Corporate Investment Grade Index registered a negative return of (79) basis points for the first quarter. Meanwhile, LIBOR continued its rapid rise, with 3-month LIBOR climbing 62 basis points from the end of last year. This increase in LIBOR boosted coupons in floating rate debt instruments and benefited the structured credit sector, including CLOs, leveraged loans, and legacy Non-Agency RMBS.
Agency RMBS prices came under substantial pressure during the first
quarter, with interest rates materially higher and many coupons
experiencing significant duration extension. These price movements were
further compounded by a significant widening in Agency RMBS yield
spreads, caused primarily by increased interest rate volatility and the
technical drag created by the escalation of the Federal Reserve's
tapering program. As measured by the
Financial Results
Holdings
As of March 31, 2018, our mortgage-backed securities portfolio consisted
of
Our overall RMBS portfolio decreased by 3.3% to
We capitalized on the widening in Agency RMBS yield spreads by covering
a portion of the short TBA positions that we use for hedging purposes,
as well as by increasing our long TBA portfolio held for investment
purposes. These portfolio maneuvers increased our net mortgage
assets-to-equity ratio to 7.8:1 as of
With Agency RMBS prices dropping during the quarter, our portfolio had significant unrealized losses. While this was partially offset by significant gains on our interest rate swaps and TBA short positions, strong TBA dollar rolls and muted prepayments caused TBAs to outperform specified pools, which in turn dampened our results. Even though we covered a portion of our TBA short positions during the quarter, short positions in TBAs continued to represent a significant portion of our interest rate hedging portfolio. Average pay-ups on our specified pools decreased to 0.59% as of March 31, 2018, as compared to 0.68% as of December 31, 2017. Pay-ups are price premiums for specified pools relative to their TBA counterparts.
Our non-Agency RMBS performed well during the quarter, driven by strong
net interest income and net realized and unrealized gains. Fundamentals
underlying non-Agency RMBS continue to remain strong, led by a stable
housing market. During the quarter we net sold assets at gains. Our
total investment in non-Agency RMBS decreased to
Earnings and Net Interest Margin
We had a net loss of
For the quarter ended March 31, 2018, the weighted average yield of our portfolio of Agency and non-Agency RMBS was 2.99%, while our average cost of funds, including interest rate swaps and U.S. Treasury securities, was 1.93%, resulting in a net interest margin for the quarter of 1.06%. By comparison, for the quarter ended December 31, 2017, the weighted average yield of our Agency and non-Agency RMBS was 2.95%, while our average cost of funds, including interest rate swaps and U.S. Treasury securities, was 1.63%, resulting in a net interest margin of 1.32%. Excluding the impact of the Catch-up Premium Amortization Adjustment, the weighted average yield of our portfolio decreased to 3.02% for the first quarter as compared to 3.04% for the fourth quarter, and our adjusted net interest margin was 1.09% and 1.41%, respectively.
On a quarter-over-quarter basis, our cost of funds, including the cost of repo, interest rate swaps, and short positions in U.S. Treasury securities, increased to 1.93% from 1.63%. This quarter-over-quarter increase resulted mainly from an increase in our repo borrowing rates, which increased as LIBOR rose. Our average repo borrowing rate increased 23 basis points quarter over quarter to 1.63%, and the cost related to our short positions in U.S. Treasury securities increased by 11 basis points from the prior quarter. These increases were partially offset by lower costs related to our interest rate swaps, which decreased 3 basis points from the prior quarter.
For the quarter ended March 31, 2018, we had total net realized and
unrealized losses of
During the quarter we continued to hedge interest rate risk, primarily
through the use of interest rate swaps, and short positions in TBAs,
U.S. Treasury securities, and futures. For the quarter, we had total net
realized and unrealized gains of
After giving effect to a first quarter dividend of
4 "10-year equivalents" for a group of positions represent the amount of 10-year U.S. Treasury securities that would experience a similar change in market value under a standard parallel move in interest rates.
Securities Portfolio
The following table summarizes our portfolio of securities as of March 31, 2018 and December 31, 2017:
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Current Principal | Fair Value | Average Price(1) | Cost | Average Cost(1) | Current Principal | Fair Value | Average Price(1) | Cost | Average Cost(1) | |||||||||||||||||||||||||||||||||||||
Agency RMBS(2) | |||||||||||||||||||||||||||||||||||||||||||||||
15-year fixed-rate mortgages | $ | 151,969 | $ | 154,850 | $ | 101.90 | $ | 158,690 | $ | 104.42 | $ | 170,998 | $ | 176,774 | $ | 103.38 | $ | 178,551 | $ | 104.42 | |||||||||||||||||||||||||||
20-year fixed-rate mortgages | 8,432 | 8,773 | 104.04 | 9,078 | 107.66 | 8,712 | 9,230 | 105.95 | 9,394 | 107.83 | |||||||||||||||||||||||||||||||||||||
30-year fixed-rate mortgages | 1,304,988 | 1,341,220 | 102.78 | 1,375,171 | 105.38 | 1,303,584 | 1,369,589 | 105.06 | 1,380,265 | 105.88 | |||||||||||||||||||||||||||||||||||||
ARMs | 22,613 | 23,382 | 103.40 | 24,010 | 106.18 | 28,087 | 29,558 | 105.24 | 29,949 | 106.63 | |||||||||||||||||||||||||||||||||||||
Reverse mortgages | 69,813 | 75,382 | 107.98 | 76,536 | 109.63 | 64,608 | 70,617 | 109.30 | 70,901 | 109.74 | |||||||||||||||||||||||||||||||||||||
Total Agency RMBS | 1,557,815 | 1,603,607 | 102.94 | 1,643,485 | 105.50 | 1,575,989 | 1,655,768 | 105.06 | 1,669,060 | 105.91 | |||||||||||||||||||||||||||||||||||||
Non-Agency RMBS | 15,258 | 12,442 | 81.54 | 10,503 | 68.84 | 21,995 | 18,025 | 81.95 | 15,278 | 69.46 | |||||||||||||||||||||||||||||||||||||
Total RMBS(2) | 1,573,073 | 1,616,049 | 102.73 | 1,653,988 | 105.14 | 1,597,984 | 1,673,793 | 104.74 | 1,684,338 | 105.40 | |||||||||||||||||||||||||||||||||||||
Agency IOs | n/a | 14,526 | n/a | 14,264 | n/a | n/a | 12,205 | n/a | 13,197 | n/a | |||||||||||||||||||||||||||||||||||||
Total mortgage-backed securities | 1,630,575 | 1,668,252 | 1,685,998 | 1,697,535 | |||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities sold short | (44,350 | ) | (44,377 | ) | 100.06 | (44,002 | ) | 99.22 | (82,492 | ) | (81,289 | ) | 98.54 | (81,836 | ) | 99.20 | |||||||||||||||||||||||||||||||
Reverse repurchase agreements | 44,617 | 44,617 | 100.00 | 44,617 | 100.00 | 81,461 | 81,461 | 100.00 | 81,461 | 100.00 | |||||||||||||||||||||||||||||||||||||
Total | $ | 1,630,815 | $ | 1,668,867 | $ | 1,686,170 | $ | 1,697,160 | |||||||||||||||||||||||||||||||||||||||
(1) | Represents the dollar amount (not shown in thousands) per $100 of current principal of the price or cost for the security. | ||
(2) | Excludes Agency IOs. | ||
Our weighted average holdings of RMBS based on amortized cost was
Financial Derivatives Portfolio
The following table summarizes fair value of our financial derivatives as of March 31, 2018 and December 31, 2017:
March 31, 2018 | December 31, 2017 | ||||||||||
(In thousands) | |||||||||||
Financial derivatives–assets, at fair value: | |||||||||||
TBA securities purchase contracts | $ | 295 | $ | 26 | |||||||
TBA securities sale contracts | 1 | 376 | |||||||||
Fixed payer interest rate swaps | 12,652 | 7,475 | |||||||||
Fixed receiver interest rate swaps | 194 | 563 | |||||||||
Swaptions | 386 | 181 | |||||||||
Futures | — | 171 | |||||||||
Total financial derivatives–assets, at fair value | 13,528 | 8,792 | |||||||||
Financial derivatives–liabilities, at fair value: | |||||||||||
TBA securities purchase contracts | (122 | ) | (266 | ) | |||||||
TBA securities sale contracts | (2,450 | ) | (469 | ) | |||||||
Fixed payer interest rate swaps | (1,191 | ) | (1,128 | ) | |||||||
Fixed receiver interest rate swaps | (1 | ) | — | ||||||||
Futures | (2,112 | ) | — | ||||||||
Total financial derivatives–liabilities, at fair value | (5,876 | ) | (1,863 | ) | |||||||
Total | $ | 7,652 | $ | 6,929 | |||||||
Interest Rate Swaps
The following tables provide details about our fixed payer interest rate swaps as of March 31, 2018 and December 31, 2017:
March 31, 2018 | ||||||||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||||||||
(In thousands) | ||||||||||||||||||||||
2020 | $ | 86,000 | $ | 1,372 | 1.60 | % | 1.76 | % | 2.07 | |||||||||||||
2021 | 161,400 | 2,428 | 2.03 | 1.90 | 3.14 | |||||||||||||||||
2022 | 68,480 | 1,511 | 2.00 | 1.80 | 4.19 | |||||||||||||||||
2023 | 150,466 | 1,984 | 2.38 | 1.82 | 4.99 | |||||||||||||||||
2024 | 8,900 | 316 | 1.99 | 1.69 | 6.01 | |||||||||||||||||
2025 | 57,822 | 361 | 2.62 | 1.97 | 6.93 | |||||||||||||||||
2026 | 40,885 | 3,423 | 1.63 | 1.87 | 8.46 | |||||||||||||||||
2027 | 30,000 | 934 | 2.29 | 1.79 | 9.10 | |||||||||||||||||
2028 | 36,663 | (397 | ) | 2.89 | 2.01 | 9.93 | ||||||||||||||||
2043 | 12,380 | (471 | ) | 2.99 | 1.83 | 25.13 | ||||||||||||||||
Total | $ | 652,996 | $ | 11,461 | 2.15 | % | 1.86 | % | 5.31 | |||||||||||||
December 31, 2017 | ||||||||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||||||||
(In thousands) | ||||||||||||||||||||||
2018 | $ | 65,990 | $ | 187 | 0.97 | % | 1.38 | % | 0.43 | |||||||||||||
2019 | 19,540 | 165 | 1.41 | 1.60 | 1.51 | |||||||||||||||||
2020 | 131,900 | 1,514 | 1.60 | 1.41 | 2.39 | |||||||||||||||||
2021 | 131,400 | 1,194 | 1.88 | 1.40 | 3.41 | |||||||||||||||||
2022 | 79,044 | 736 | 1.97 | 1.39 | 4.48 | |||||||||||||||||
2023 | 54,200 | 873 | 1.93 | 1.37 | 5.47 | |||||||||||||||||
2024 | 8,900 | 142 | 1.99 | 1.34 | 6.26 | |||||||||||||||||
2025 | 15,322 | 196 | 2.04 | 1.37 | 7.13 | |||||||||||||||||
2026 | 40,885 | 2,230 | 1.63 | 1.36 | 8.71 | |||||||||||||||||
2027 | 48,010 | 235 | 2.30 | 1.40 | 9.38 | |||||||||||||||||
2043 | 12,380 | (1,125 | ) | 2.99 | 1.41 | 25.38 | ||||||||||||||||
Total | $ | 607,571 | $ | 6,347 | 1.77 | % | 1.40 | % | 4.54 | |||||||||||||
The following tables provide details about our fixed receiver interest rate swaps as of March 31, 2018 and December 31, 2017:
March 31, 2018 | ||||||||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||||||||
(In thousands) | ||||||||||||||||||||||
2021 | $ | 13,000 | $ | (1 | ) | 2.31 | % | 2.66 | % | 3.01 | ||||||||||||
2025 | 9,700 | 194 | 1.72 | 3.00 | 7.30 | |||||||||||||||||
Total | $ | 22,700 | $ | 193 | 2.06 | % | 2.80 | % | 4.84 | |||||||||||||
December 31, 2017 | ||||||||||||||||||||||
Maturity |
Notional |
Fair Value |
Weighted |
Weighted |
Weighted Average |
|||||||||||||||||
(In thousands) | ||||||||||||||||||||||
2025 | $ | 9,700 | $ | 563 | 1.36 | % | 3.00 | % | 7.54 | |||||||||||||
Total | $ | 9,700 | $ | 563 | 1.36 | % | 3.00 | % | 7.54 | |||||||||||||
Interest Rate Swaptions
The following tables provide information about our swaptions as of March 31, 2018 and December 31, 2017.
March 31, 2018 | ||||||||||||||||||||
Option | Underlying Swap | |||||||||||||||||||
Type | Fair Value |
Months to |
Notional |
Term (Years) |
Fixed Rate |
|||||||||||||||
($ in thousands) | ||||||||||||||||||||
Fixed Payer | $ | 386 | 4.0 | $ | 10,000 | 10 | 2.40% | |||||||||||||
December 31, 2017 | ||||||||||||||||||||
Option | Underlying Swap | |||||||||||||||||||
Type | Fair Value |
Months to |
Notional |
Term (Years) |
Fixed Rate |
|||||||||||||||
($ in thousands) | ||||||||||||||||||||
Fixed Payer | $ | 181 | 7.0 | $ | 10,000 | 10 | 2.40% | |||||||||||||
Futures
The following table provides information about our short positions in futures as of March 31, 2018 and December 31, 2017:
March 31, 2018 | ||||||||||||||
Description | Notional Amount | Fair Value |
Remaining Months |
|||||||||||
($ in thousands) | ||||||||||||||
U.S. Treasury Futures | $ | (296,100 | ) | $ | (2,112 | ) | 2.84 | |||||||
December 31, 2017 | ||||||||||||||
Description | Notional Amount | Fair Value |
Remaining Months |
|||||||||||
($ in thousands) | ||||||||||||||
U.S. Treasury Futures | $ | (25,800 | ) | $ | 171 | 2.63 | ||||||||
TBAs
The following table provides information about our TBAs as of March 31, 2018 and December 31, 2017:
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||
TBA Securities |
Notional |
Cost |
Market |
Net |
Notional |
Cost |
Market |
Net |
|||||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||||||||
Purchase contracts: | |||||||||||||||||||||||||||||||||||||||||
Assets | $ | 98,555 | $ | 99,949 | $ | 100,244 | $ | 295 | $ | 37,355 | $ | 38,065 | $ | 38,091 | $ | 26 | |||||||||||||||||||||||||
Liabilities | 41,149 | 42,763 | 42,641 | (122 | ) | 75,789 | 79,570 | 79,304 | (266 | ) | |||||||||||||||||||||||||||||||
139,704 | 142,712 | 142,885 | 173 | 113,144 | 117,635 | 117,395 | (240 | ) | |||||||||||||||||||||||||||||||||
Sale contracts: | |||||||||||||||||||||||||||||||||||||||||
Assets | (3,600 | ) | (3,770 | ) | (3,769 | ) | 1 | (358,279 | ) | (372,219 | ) | (371,843 | ) | 376 | |||||||||||||||||||||||||||
Liabilities | (378,653 | ) | (379,954 | ) | (382,404 | ) | (2,450 | ) | (328,576 | ) | (341,134 | ) | (341,603 | ) | (469 | ) | |||||||||||||||||||||||||
(382,253 | ) | (383,724 | ) | (386,173 | ) | (2,449 | ) | (686,855 | ) | (713,353 | ) | (713,446 | ) | (93 | ) | ||||||||||||||||||||||||||
Total TBA securities, net | $ | (242,549 | ) | $ | (241,012 | ) | $ | (243,288 | ) | $ | (2,276 | ) | $ | (573,711 | ) | $ | (595,718 | ) | $ | (596,051 | ) | $ | (333 | ) |
(1) | Notional amount represents the principal balance of the underlying Agency RMBS. | ||
(2) | Cost basis represents the forward price to be paid for the underlying Agency RMBS. | ||
(3) | Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of the respective period end. | ||
(4) | Net carrying value represents the difference between the market value of the TBA contract as of the respective period end and the cost basis, and is reported in Financial derivatives-assets, at fair value and Financial derivatives-liabilities, at fair value on the Consolidated Balance Sheet, for each respective period end. | ||
We primarily use TBAs to hedge interest rate risk, typically in the form of short positions. However, from time to time we also invest in TBAs as a means of acquiring exposure to Agency RMBS, or for speculative purposes, including holding long positions. Overall, we typically hold a net short position.
The following tables detail gains and losses on our financial derivatives for the three month periods ended March 31, 2018 and December 31, 2017:
Three Month Period Ended March 31, 2018 | |||||||||||||||||||||||||||||||
Derivative Type |
Net Realized |
Net Realized |
Net Realized |
Change in Net |
Change in Net |
Change in Net |
|||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||
Interest rate swaps | $ | 1,132 | $ | 2,441 | $ | 3,573 | $ | (1,511 | ) | $ | 6,098 | $ | 4,587 | ||||||||||||||||||
Swaptions | — | — | 205 | 205 | |||||||||||||||||||||||||||
TBAs | 11,303 | 11,303 | (1,944 | ) | (1,944 | ) | |||||||||||||||||||||||||
Futures | 1,079 | 1,079 | (2,283 | ) | (2,283 | ) | |||||||||||||||||||||||||
Total | $ | 1,132 | $ | 14,823 | $ | 15,955 | $ | (1,511 | ) | $ | 2,076 | $ | 565 | ||||||||||||||||||
Three Month Period Ended December 31, 2017 | |||||||||||||||||||||||||||||||
Derivative Type |
Net Realized |
Net Realized |
Net Realized |
Change in Net |
Change in Net |
Change in Net |
|||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||
Interest rate swaps | $ | (2,497 | ) | $ | 299 | $ | (2,198 | ) | $ | 1,967 | $ | 4,103 | $ | 6,070 | |||||||||||||||||
Swaptions | — | — | (31 | ) | (31 | ) | |||||||||||||||||||||||||
TBAs | 2,940 | 2,940 | (1,760 | ) | (1,760 | ) | |||||||||||||||||||||||||
Futures | 630 | 630 | (371 | ) | (371 | ) | |||||||||||||||||||||||||
Total | $ | (2,497 | ) | $ | 3,869 | $ | 1,372 | $ | 1,967 | $ | 1,941 | $ | 3,908 | ||||||||||||||||||
Interest Rate Sensitivity
The following table summarizes, as of March 31, 2018, the estimated effects on the value of our portfolio, both overall and by category, of immediate downward and upward parallel shifts of 50 basis points in interest rates.
Estimated Change in Fair Value(1) | |||||||||||||||||||
(In thousands) |
50 Basis Point Decline |
50 Basis Point Increase |
|||||||||||||||||
Market Value |
% of Total |
Market Value |
% of Total |
||||||||||||||||
Agency RMBS—ARM Pools | $ | 233 | 0.13 | % | $ | (244 | ) | (0.14 | )% | ||||||||||
Agency RMBS—Fixed Pools and IOs | 29,025 | 16.28 | % | (37,296 | ) | (20.92 | )% | ||||||||||||
TBAs | (5,740 | ) | (3.22 | )% | 7,004 | 3.93 | % | ||||||||||||
Non-Agency RMBS | 295 | 0.17 | % | (283 | ) | (0.16 | )% | ||||||||||||
Interest Rate Swaps | (15,217 | ) | (8.54 | )% | 14,672 | 8.23 | % | ||||||||||||
Swaptions | (317 | ) | (0.18 | )% | 418 | 0.23 | % | ||||||||||||
U.S. Treasury Securities | (2,073 | ) | (1.16 | )% | 1,959 | 1.10 | % | ||||||||||||
U.S. Treasury Futures | (9,127 | ) | (5.12 | )% | 8,854 | 4.97 | % | ||||||||||||
Repurchase and Reverse Repurchase Agreements | (942 | ) | (0.53 | )% | 942 | 0.53 | % | ||||||||||||
Total | $ | (3,863 | ) | (2.17 | )% | $ | (3,974 | ) | (2.23 | )% |
(1) | Based on the market environment as of March 31, 2018. Results are based on forward-looking models, which are inherently imperfect, and incorporate various simplifying assumptions. Therefore, the table above is for illustrative purposes only and actual changes in interest rates would likely cause changes in the actual value of the overall portfolio that would differ from those presented above and such differences might be significant and adverse. | ||
Repo Borrowings
The following table details our outstanding borrowings under repo agreements as of March 31, 2018 and December 31, 2017:
March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||||
Weighted Average | Weighted Average | ||||||||||||||||||||||||
Remaining Days to Maturity |
Borrowings |
Interest Rate |
Remaining |
Borrowings |
Interest Rate |
Remaining |
|||||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||||||
30 days or less | $ | 468,222 | 1.67 | % | 16 | $ | 410,628 | 1.41 | % | 15 | |||||||||||||||
31-60 days | 818,835 | 1.76 | 45 | 906,602 | 1.46 | 46 | |||||||||||||||||||
61-90 days | 302,262 | 1.90 | 75 | 273,665 | 1.60 | 74 | |||||||||||||||||||
91-120 days |
— |
— |
|
— | 6,311 | 1.61 | 120 | ||||||||||||||||||
Total | $ | 1,589,319 | 1.76 | % | 42 | $ | 1,597,206 | 1.47 | % | 43 | |||||||||||||||
As of March 31, 2018, we had no outstanding borrowings other than under repo agreements. Our repo borrowings were with 15 counterparties as of March 31, 2018. The above figures are as of the respective quarter ends; over the course of the quarters ended March 31, 2018 and December 31, 2017 our average cost of repo was 1.63% and 1.40%, respectively.
Other
We incur an annual base management fee, payable quarterly in arrears, in an amount equal to 1.50% of shareholders' equity (as defined in our management agreement). For the quarter ended March 31, 2018, our expense ratio, defined as management fees and operating expenses as a percentage of average shareholders' equity, was 3.3% on an annualized basis for the quarter ended March 31, 2018, as compared to 3.1% as of December 31, 2017. The increase in our annualized expense ratio resulted primarily from lower average equity.
Dividends
On
Share Repurchase Program
On
Reconciliation of Core Earnings to Net Income (Loss)
Core Earnings consists of net income (loss), excluding realized and change in net unrealized gains and (losses) on securities and financial derivatives, and, if applicable, items of income or loss that are of a non-recurring nature. Core Earnings includes net realized and change in net unrealized gains (losses) associated with payments and accruals of periodic payments on interest rate swaps. Adjusted Core Earnings represents Core Earnings excluding the effect of the Catch-up Premium Amortization Adjustment on interest income. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on our then assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.
Core Earnings and Adjusted Core Earnings are supplemental non-GAAP financial measures. We believe that Core Earnings and Adjusted Core Earnings provide information useful to investors because they are metrics that we use to assess our performance and to evaluate the effective net yield provided by the portfolio. Moreover, one of our objectives is to generate income from the net interest margin on the portfolio, and Core Earnings and Adjusted Core Earnings are used to help measure the extent to which this objective is being achieved. However, because Core Earnings and Adjusted Core Earnings are incomplete measures of our financial results and differ from net income (loss) computed in accordance with GAAP, they should be considered as supplementary to, and not as substitutes for, net income (loss) computed in accordance with GAAP.
The following table reconciles, for the three month periods ended March 31, 2018 and December 31, 2017, our Core Earnings and Adjusted Core Earnings on a consolidated basis to the line on our Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable GAAP measure on our Consolidated Statement of Operations to Core Earnings:
(In thousands except share amounts) |
Three Month |
Three Month |
|||||||||
Net Income (Loss) | $ | (3,953 | ) | $ | 793 | ||||||
Less: | |||||||||||
Net realized gains (losses) on securities | 1,927 | 327 | |||||||||
Net realized gains (losses) on financial derivatives, excluding periodic payments(1) | 14,823 | 3,869 | |||||||||
Change in net unrealized gains (losses) on securities | (27,061 | ) | (10,284 | ) | |||||||
Change in net unrealized gains (losses) on financial derivatives, excluding accrued periodic payments(2) | 2,076 | 1,941 | |||||||||
Subtotal | (8,235 | ) | (4,147 | ) | |||||||
Core Earnings | $ | 4,282 | $ | 4,940 | |||||||
Less: Catch-up Premium Amortization Adjustment | (150 | ) | (401 | ) | |||||||
Adjusted Core Earnings | $ | 4,432 | $ | 5,341 | |||||||
Weighted Average Shares Outstanding | 13,224,214 | 13,336,763 | |||||||||
Core Earnings Per Share | $ | 0.32 | $ | 0.37 | |||||||
Adjusted Core Earnings Per Share | $ | 0.34 | $ | 0.40 |
(1) | For the three month period ended March 31, 2018, represents Net realized gains (losses) on financial derivatives of $16.0 million less Net realized gains (losses) on periodic settlements of interest rate swaps of $1.1 million. For the three month period ended December 31, 2017, represents Net realized gains (losses) on financial derivatives of $1.4 million less Net realized gains (losses) on periodic settlements of interest rate swaps of $(2.5) million. | ||
(2) | For the three month period ended March 31, 2018, represents Change in net unrealized gains (losses) on financial derivatives of $0.6 million less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $(1.5) million. For the three month period ended December 31, 2017, represents Change in net unrealized gains (losses) on financial derivatives of $3.9 million less Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps of $2.0 million. | ||
About
Conference Call
We will host a conference call at
A dial-in replay of the conference call will be available on Friday,
May 4, 2018, at approximately
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve
numerous risks and uncertainties. Actual results may differ from our
beliefs, expectations, estimates, and projections and, consequently, you
should not rely on these forward-looking statements as predictions of
future events. Forward-looking statements are not historical in nature
and can be identified by words such as "believe," "expect,"
"anticipate," "estimate," "project," "plan," "continue," "intend,"
"should," "would," "could," "goal," "objective," "will," "may," "seek,"
or similar expressions or their negative forms, or by references to
strategy, plans, or intentions. Examples of forward-looking statements
in this press release include, without limitation, our beliefs regarding
the current economic and investment environment, our ability to
implement our investment and hedging strategies, our future prospects
and the protection of our net interest margin from prepayments,
volatility and its impact on us, the performance of our investment and
hedging strategies, our exposure to prepayment risk in our Agency
portfolio, estimated effects on the fair value of our RMBS and interest
rate derivative holdings of a hypothetical change in interest rates,
statements regarding our share repurchase program, and statements
regarding the drivers of our returns. Our results can fluctuate from
month to month and from quarter to quarter depending on a variety of
factors, some of which are beyond our control and/or are difficult to
predict, including, without limitation, changes in interest rates and
the market value of our securities, changes in mortgage default rates
and prepayment rates, our ability to borrow to finance our assets,
changes in government regulations affecting our business, our ability to
maintain our exclusion from registration under the Investment Company
Act of 1940 and other changes in market conditions and economic trends.
Furthermore, forward-looking statements are subject to risks and
uncertainties, including, among other things, those described in Item 1A
of our Annual Report on Form 10-K for the fiscal year ended
ELLINGTON RESIDENTIAL MORTGAGE REIT |
|||||||||||
CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||||||
(UNAUDITED) |
|||||||||||
Three Month
Period Ended |
|||||||||||
March 31, |
December 31, |
||||||||||
(In thousands except share amounts) | |||||||||||
INTEREST INCOME (EXPENSE) | |||||||||||
Interest income | $ | 13,426 | $ | 13,111 | |||||||
Interest expense | (7,248 | ) | (6,129 | ) | |||||||
Total net interest income | 6,178 | 6,982 | |||||||||
EXPENSES | |||||||||||
Management fees to affiliate | 671 | 725 | |||||||||
Professional fees | 234 | 227 | |||||||||
Compensation expense | 189 | 178 | |||||||||
Insurance expense | 74 | 74 | |||||||||
Other operating expenses | 349 | 308 | |||||||||
Total expenses | 1,517 | 1,512 | |||||||||
OTHER INCOME (LOSS) | |||||||||||
Net realized gains (losses) on securities | 1,927 | 327 | |||||||||
Net realized gains (losses) on financial derivatives | 15,955 | 1,372 | |||||||||
Change in net unrealized gains (losses) on securities | (27,061 | ) | (10,284 | ) | |||||||
Change in net unrealized gains (losses) on financial derivatives | 565 | 3,908 | |||||||||
Total other income (loss) | (8,614 | ) | (4,677 | ) | |||||||
NET INCOME (LOSS) | $ | (3,953 | ) | $ | 793 | ||||||
NET INCOME (LOSS) PER COMMON SHARE: | |||||||||||
Basic and Diluted | $ | (0.30 | ) | $ | 0.06 | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | 13,224,214 | 13,336,763 | |||||||||
CASH DIVIDENDS PER SHARE: | |||||||||||
Dividends declared | $ | 0.37 | $ | 0.37 | |||||||
ELLINGTON RESIDENTIAL MORTGAGE REIT |
|||||||||||
CONSOLIDATED BALANCE SHEET |
|||||||||||
(UNAUDITED) |
|||||||||||
As of | |||||||||||
March 31, |
December 31, |
||||||||||
(In thousands except share amounts) | |||||||||||
ASSETS | |||||||||||
Cash and cash equivalents | $ | 46,025 | $ | 56,117 | |||||||
Mortgage-backed securities, at fair value | 1,630,575 | 1,685,998 | |||||||||
Due from brokers | 32,061 | 26,754 | |||||||||
Financial derivatives–assets, at fair value | 13,528 | 8,792 | |||||||||
Reverse repurchase agreements | 44,617 | 81,461 | |||||||||
Receivable for securities sold | 73,560 | 21,606 | |||||||||
Interest receivable | 5,645 | 5,784 | |||||||||
Other assets | 523 | 575 | |||||||||
Total Assets | $ | 1,846,534 | $ | 1,887,087 | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
LIABILITIES | |||||||||||
Repurchase agreements | $ | 1,589,319 | $ | 1,597,206 | |||||||
Payable for securities purchased | 17,612 | 3,830 | |||||||||
Due to brokers | 1,025 | 489 | |||||||||
Financial derivatives–liabilities, at fair value | 5,876 | 1,863 | |||||||||
U.S. Treasury securities sold short, at fair value | 44,377 | 81,289 | |||||||||
Dividend payable | 4,746 | 4,936 | |||||||||
Accrued expenses | 911 | 728 | |||||||||
Management fee payable to affiliate | 671 | 725 | |||||||||
Interest payable | 3,685 | 3,318 | |||||||||
Total Liabilities | 1,668,222 | 1,694,384 | |||||||||
SHAREHOLDERS' EQUITY | |||||||||||
Preferred shares, par value $0.01 per share, 100,000,000 shares authorized; |
— | — | |||||||||
(0 shares issued and outstanding, respectively) |
|||||||||||
Common shares, par value $0.01 per share, 500,000,000 shares authorized; |
128 | 134 | |||||||||
(12,827,850 and 13,340,217 shares issued and outstanding, respectively) |
|||||||||||
Additional paid-in-capital | 234,376 | 240,062 | |||||||||
Accumulated deficit | (56,192 | ) | (47,493 | ) | |||||||
Total Shareholders' Equity | 178,312 | 192,703 | |||||||||
Total Liabilities and Shareholders' Equity | $ | 1,846,534 | $ | 1,887,087 | |||||||
PER SHARE INFORMATION | |||||||||||
Common shares, par value $0.01 per share | $ | 13.90 | $ | 14.45 |
(1) | Derived from audited financial statements as of December 31, 2017. | ||
View source version on businesswire.com: https://www.businesswire.com/news/home/20180503006612/en/
Source:
Investor: Maria Cozine, Vice President of Investor Relations, Ellington
Residential Mortgage REIT, (203) 409-3773 or info@earnreit.com
or
Media:
Amanda Klein or Kevin Fitzgerald, Gasthalter & Co., for Ellington
Residential Mortgage REIT, (212) 257-4170 or Ellington@gasthalter.com